Tullis Russell and Inveresk - the difference in ownership.

Yesterday, I met with Eileen Jarrett who chairs the Employee Ownership Board at Tullis Russell Papermakers based in Fife, Scotland.  She was telling me that despite the challenges currently facing the paper industry, Tullis Russell continues to hold its own. 
 
In some ways, the size of Tullis Russell is a huge advantage in such a competitive industry;  they are small enough to be flexible to customer needs, and large enough to offer economies of scale.  It's a company that takes its responsibilities to the local community seriously, investing in a biomass plant and supporting many local organisations. 
 
Eileen was telling me that she'd recently visited a local school to talk about paper making, and many of the children had family members working at the mill. Companies like Tullis Russell are important for the fabric of communities and the local and national economy, especially when context of so many UK based mills going out of business.
 
Why has Tullis Russell succeeded where others have failed?  David Erdal's paper which you can read here provides a comparison between the stories of Tullis Russell and Inveresk and ascribes much of the success of Tullis Russell to the fact it is owned by its employees. 
Until 1990, the companies were demonstrating a similar performance.  In 1981, Inveresk was taken over by an American company, and was subsequently bought out by a private equity backed MBO in 1990. 
 
In 1993, the company had a successful flotation.  Tullis Russell had been a family owned business until David Erdal started the process of an employee buy out which completed in 1994.  Fifteen years on, Inveresk had closed its three large mills and sold its flagship product - to Tullis Russell. In the paper, the MD of Inveresk at the time, Stefan Kay, tells of the pressure the company was under during the MBO and the following the flotation.
 
Effectively, the company was under the control of a merchant bank and the constraints were suffocating. Events at Tullis Russell were quite different. Employees were involved inthe company plans and improvement processes, and the company could flourish free from distraction of external influences.
 
Interestingly, Erdal tells how the company was more successful in attracting top flight managers once the company was in employee ownership, compared to being family- owned. It's an interesting paper, and should be required reading for the cynics who think employee ownership is the soft option. It's not, and when there are hard decisions to be made it's often easier to have the involvement of those affected. 
 
The contrast of the two companies shows that the traditional MBO or flotation is often not the best, more sustainable option.  Tullis Russell continues to face challenging times, but with the combination of a strong management team, good involvement from employees and a focus on success continues to buck the trend.